Inventory Management
Procurement
Method Pay
Analytics & Reporting
It’s no secret that being prepared and well-informed about where your supply budget is going will save you thousands of dollars in the long term.
The difference in the price you pay is based on your level of organization and preparedness.
Data creates leverage that your suppliers cannot ignore.
If you come to the negotiation table unprepared, you are at their mercy and will pay what they demand. Instead, arriving with a well-developed, data-driven approach could save your practice thousands of dollars a year.
One sure-fire strategy you can use to make data-driven negotiation work for you is to reference your actual order history.
Looking back 3-6 months can give you an idea of what you purchase, when you purchase it, and at what cost. More importantly, it gives you a tool to show distributors your month to month spending power.
Use this order history to craft a list of items, and then send this to 2-3 suppliers. With the quotes you receive, create a cost analysis comparing each item from the different suppliers. With this analysis, you can determine which vendor wins each item at which price, becoming your leverage for every future negotiation.
This becomes your leverage for two reasons:
Let’s now look at how to lock in these competitive quotes.
Distributors want you to be disorganized - they even prey on it. Their business practices thrive on their clients’ naivety and prices creep up when there is no one to hold them accountable. You may see price discrepancies between quoted prices and charged prices, or notice the prices increase dramatically after a fixed period of time that was only specified in hidden fine print.
Combat these practices by staying organized and data-oriented. Some methods you can employ to avoid these price hikes are:
Don’t let suppliers take advantage of you. You will save thousands just by maintaining a clean documentation of prior quotes and purchase orders. Keep suppliers faithful to their promised rates, and accountable if they attempt to overcharge you.
One method to create leverage and a “race to the bottom” from your suppliers is to advise them that they’re part of a competitive process.
Sharing the same list with 2-3 suppliers and letting them know that they will win whatever they’re the lowest on will create this “race”, trying to outdo their competitors with lower prices.
When suppliers know that there is real competition, their best prices will be quickly submitted. Oftentimes, if vendors believe they don’t need to work all that hard for your business, they will try to upsell you. Advising them that you are actively tracking and comparing costs will ensure they feel pressured to drop prices.
You need to limit this strategy to 3 vendors maximum.
Using too many vendors can have two negative effects. The first effect is administrative strain caused by too much logistical maintenance, while the second negative effect is the potential to lose vendors who deem the competition too wide to be worth their time. 2-3 vendors is the perfect amount for this strategy.
Framing is an important factor of your negotiation tactics. One way you can use framing to gain some leverage on suppliers is by showcasing your total annual spending. You should calculate both your total annual spending and also your annual spending per supplier.
With these figures, you can frame your negotiation conversations along the lines of “You could win X% of my total annual spending”. Using historical data can help to convince suppliers to try and win more of your business than they did the prior year. This will drive vendors to offer better deals.
Even small practices can use this strategy. Small annual spending, for example $20,000, is still a good chunk of revenue for suppliers that want to maximize their share of. You can also present data showing your annual spending growth over the past few years, this can encourage vendors to work with you if they believe that your spending will continue to increase.
Ensuring you avoid overburdening your operation due to administrative headaches is just as vital to saving costs.
Dealing with more than 3 vendors can present logistical challenges and weigh down your practice with over-complex invoicing and delivery.
Saving a few bucks on an additional vendor is not worth an additional invoice to process. There are true costs of managing multiple vendors that can over time waste time and money.
Sticking with 2-3 vendors is ideal for this reason. Pick the vendors that offer the best overall deals, and then you can leverage these vendors against each other using the strategies outlined above.
From a former rep in the distribution business: some clients always got the lowest deals.
This client could be you if you're willing to do your due diligence and use your data to your advantage. Suppliers prey on practices that are disorganized or unprepared to deal with their antics.
You can empower your practice and improve your procurement strategy by using a data-driven approach. You need data and an organized strategy, not a large order volume. Using the right technology can ensure you maintain this level of organization necessary to properly and effectively negotiate with vendors.
By integrating with tools like Method, you can:
Are you ready to use your data to your advantage? Set up a call with one of our experts to see how leading practices are transforming supply chain management.
